Comment on President Biden vetoes crypto custody bill
Tachikoma741@lemmy.today 5 months agoThis sounds good. To my understanding, banks in the US do not actually have to hold and money in reserve for it’s customers as of… 2020?
Hey I found the government posting! www.federalreserve.gov/…/reservereq.htm
workerONE@lemmy.world 5 months ago
Yeah that’s correct. It’s pretty wild that things work this way. Most people think that we still have fractional reserve banking, which is where the bank has $1 in reserve and they lend it out as a deposit into many borrower accounts or to other banks simultaneously. With no reserve requirement they can essentially loan money to borrowers that doesn’t exist. As long as banks have borrowers with good credit banks can loan any amount, crediting borrowers accounts with deposits which the borrowers can then withdraw as physical money. Banks want to avoid succumbing to a bank run where too many clients make withdrawals at the same time. But essentially they operate like a retail business that determines how many products to keep on hand in order to meet demand on any given day. Bank loans create both a credit (to the borrowers account) and a debit in the bank’s main ledger, the debit is a liability as we discussed, the bank must be prepared to pay.